Too Risky to Hold
Chipotle (CMG) got "Einhorned." Hedge fund manager David Einhorn has become well known over the past few years for detailed presentations that point out ridiculously overvalued stocks. He has identified some huge short-side winners dating back to the now-famous 2002 Allied Capital presentation at the Ira Sohn Investment Conference. He has followed that up with legendary short call on overvalued situations like Lehman Brothers and Green Mountain Coffee Roasters (GMCR). When Einhorn speaks, investors act, and Chipotle is his latest victim.
I wish I had his pull and could "Melvin" some stocks and sectors. I have warned of the dangers of owing market darlings like Chipotle and Green Mountain for many years. One misstep, one earnings miss, one "Einhorning" by a noted investor and several years of gains can disappear in a flash. Chipotle had a tremendous run from September 2011, but all those gains are gone from investors who missed the top. All but the most adept and nimble momentum investors and traders should avoid high-momentum stocks with mostly institutional ownership. Green Mountain lost three years of gains in just a few months when the momentum turned against it. There is no margin of safety at such valuations, so a decline is not a buying event but often a permanent loss of capital....488 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.
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